Inflation still well below target

INFLATIONARY pressures in the UK remain under control, although there are early signs that a slow pick-up is at hand, analysts said after January figures were released today.

The data revealed that UK consumer prices rose at a year-on-year rate of 1.4% in January, notably below the Bank of England's target of 2%. While the January reading is the highest since April 2003, the annual pace of inflation is in line with expectations.

The data gives the Bank of England's Monetary Policy Committee further justification for its two rate hikes, even though current inflation, as measured by the consumer price index (CPI), is way below target.

Simon Rubinsohn, chief economist at broker Gerrard, said: 'The key issue for the MPC is not the current rate of inflation but the likelihood that, with growth running ahead of trend, spare capacity in the economy will be exhausted over the next couple of years. As a result, a further increase in base rates in May is still a distinct possibility.'

Adam Chester, economist at HBOS Treasury Services said the data suggests that 'the bottom of the cycle has been reached', though he added that nothing in today's release is cause for undue concern.

According to Royal Bank of Scotland economist Geoff Dicks, the low sales discounts gives credence to the official retail sales data and belies the retailers' claims that Christmas trading was poor.

'Overall the trend in CPI inflation is just about turning up and will gather momentum over the coming months,' he added.